PUAD 662 – NATIONAL BUDGETING, SPRING 2014
Professor Paul L. Posner
703-371-1343 – cell
703-993-3957 – office
703-631-1445 – home
pposner@gmu.edu
Office hours: Tuesday, Metropolitan Building, 530-700 pm
Course Description
This course will focus on how the national government raises revenue and spends it. That
sounds simple enough, just like your family budget! Except unlike your family budget,
the participants don’t love each other. In fact, there are thousands of participants, each
with differing interests and designs on scarce resources.
The question of how much of the economy to devote to government through taxes and
how to allocate those revenues is the most important annual decision that political leaders
at all levels of government must make. They can decide to avoid some tough choices –
reforming immigration and social security are two recent major policy reforms that
leaders ducked for fear of the political consequences. Unlike these other areas,
decisionmakers must decide the size and distribution of the pie every year, whether they
like it or not.
Budgetary choices have large economic and political stakes. From an economic
perspective, the federal budget bottom line constitutes fiscal policy – a primary level for
federal elected officials to manage the economy and deliver on campaign promises to
create full employment with low inflation. The debates over the budget’s bottom line –
how much deficit or surplus should have both now and in the future – have important
consequences for the growth of the economy and for the distribution of economic
resources among various interests. Individual budgetary decisions also have important
economic implications – the decision to invest public resources in a particular area can
have profound effects on private investments. For instance, the decision to provide
federally subsidized flood insurance has set in motion the settlement of beaches and other
low lying flood plains throughout the country, as home owners, realtors and developers
are indemnified from risk by federal insurance payouts.
While economically relevant, the budget is at its heart a political document. Whether
officials try to hide it or not, the budget reveals their underlying priorities about two
important values – how much government should extract from the economy and which
claimants deserve more or less from the scarce resources that are raised. To make matters
more tense, not only are resources limited for public programs, but needs are virtually
infinite. Generals can testify about the woeful state of military armaments and readiness
with as much earnesty and drama as highway engineers can attest to the many bridges
about to collapse – and both can cite figures denominated in trillions of dollars to make
the necessary investments to mitigate the risks to the public and the republic. Making
tradeoffs among competing claims for limited resources is an inherently political process.
No one has figured out a magic analytic formula for deciding how to determine the
relative merit of these competing claims and groups.
Thus, budgeting is at its heart a political process. But it is also a technical and managerial
process. Managing the choice making requires seemingly mind numbing processes to
create a common way to measure claims and ensure all the numbers add up. The
technical jargon and cost accounting involved with budgeting at times seems to mask the
underlying political stakes involved. But the manipulation of budget concepts, accounting
and processes is as much a political process as the direct choices that are made. Savvy
interest groups have their own litany of budget process reforms which, while always
argued as saving the republic from imminent harm, have the fortunate side effect of just
happening to benefit the interests of the group advocating that particular process reform.
Thus, it is no surprise that highway lobby organizations advocate a capital budget – a
budget structure designed to highlight and presumably more fully fund the vast inventory
of unmet needs in this area.
Budget processes are not just about how we make choices, but also about how we track
and implement those choices. Legislators and Presidents alike are held accountable not
just for the choices they make but for the results of the programs and operations they
fund. Budget execution phases of budgeting are important to understand since these are
the processes that determine how agencies, the President and the Congress ensure that
actual spending is effective, efficient and, above all else, legal.
This course will help you better understand how budget systems address these political,
economic and managerial issues. We will work together to explore the following major
areas:
--The conceptual basis for the government’s role in the economy and the society
--The economic rationale and implications of national budgeting decisions
--The political processes shaping budgetary choices
--The role played by various institutions in federal budgeting
--The design and implementation of the budget formulation and execution process
at the federal level
--The various reforms proposed for changing the budgetary process
Course Expectations
Students will be expected to gain a conceptual understanding of the budget process in
general as well as a familiarity with key features of budget formulation and execution.
Students will deal with these issues through a combination of readings, class discussion,
group projects and exams. A series of short two page essays will be required periodically
to test students’ mastery of readings and concepts. A midterm and final take home exam
will be administered.
Students will be responsible for leading discussion of course readings each week. In
addition, students will form groups in class to do the following projects:
--Budget trends analysis – students will report to class on trends in key policy
areas
--Reports on key budget policy issues – groups will be responsible for presenting
case studies to illustrate the issues discussed in class to be determined. Issues to be
discussed will include the budget implications of social security, health care reform,
infrastructure investment, the Obama stimulus and the states, value added taxation and
extraordinary budget process reforms.
--Deficit reduction exercise – students will form teams to play the role of various
actors in the U.S. Senate assigned with the task of reducing the federal budget deficit by
$1 trillion over 5 years.. Teams will play the following actors: President Obama, Senate
Majority Leader Reid, Senate Minority Leader McConnell, Senator Olympia Snowe as
leader of Republican moderates and Senator Ben Nelson as leader of Democratic
moderates.
Grading will follow these weights:
Final exam – 35%
Two pagers – 25%
Class presentations – 25%
General oral participation – 15%
Two basic text books will be assigned:
Allen Schick, Federal Budget: Policy, Politics and Process 3rd edition
(Washington, D.C.: Brookings, 2007)
Jay Eungha Ryu, The Public Budgeting and Finance Primer
Considerable reliance will be placed on budget documents and reports issued by the U.S.
Office of Management and Budget, the Congressional Budget Office and the U.S.
Government Accountability Office which can be accessed on line at those agencies web
sites (omb.gov; cbo.gov; gao.gov) In addition, various handouts will be provided through
the University Library’s e-reserve and a password will be announced in class for students
to access these materials. Three particularly useful documents are
--The GAO’s budget glossary that provides a handy definition of budgetary terms
you may not be familiar with. (U.S. Government Accountability Office, A Glossary of
Terms Used in the Federal Budget Process (GAO-05-734SP) www;gao.gov
--The CBO’s annual Budget and Economic Outlook: An Update, August, 2011
(www.cbo.gov)
--The OMB’s budget documents, particularly the Analytical Perspectives and the
Historical Tables, FY2012 Budget
Students should notify the instructor if they are unable to attend a particular class by
email either before or immediately after class. Unexplained absences will be duly noted
in determining the student’s grade.
Students will be required to hand all assignments in on time. Should students be late, the
grade will be lowered by one half of a grade in deference to those students who submitted
work on time.
Plagiarism: You are expected to adhere to the honor code of George Mason University.
This includes the university’s policy on plagiarism. Using the words or ideas of anyone
other than yourself, and pretending those words are your own, constitutes serious
academic dishonesty and will not be tolerated. Any words or ideas presented in your
paper which are not your own must be properly quoted and/or cited in your paper. To
guard against plagiarism and to treat students equitably, written work may be checked
against existing published materials or digital databases available through various
plagiarism detection services. Accordingly electronic forms of submitted materials may
be requested.
The Honor Code policy endorsed by the members of the Department of Public and
International Affairs
relative to the types of academic work indicated below is set out in the appropriate
paragraphs:
1. Quizzes, tests and examinations. No help may be given or received by students when
taking quizzes, tests, or examinations, whatever the type or wherever taken, unless the
instructor specifically permits deviation from this standard.
2. Course Requirements: All work submitted to fulfill course requirements is to be solely
the product
of the individual(s) whose name(s) appears on it. Except with permission of the
instructor, no recourse is to be had to projects, papers, lab reports or any other written
work previously prepared by another student, and except with permission of the
instructor no paper or work of any type submitted in partial fulfillment of the
requirements of another course may be used a second time to satisfy a requirement of any
course in the Department of Public and International Affairs. No assistance is to be
obtained from commercial organizations which sell or lease research help or written
papers. With respect to all written work as appropriate, proper footnotes and attribution
are required.
January 21– What is a budget anyway?
This session will discuss the overview of the course. criteria for shaping the
government’s role in the national economy and society. Public finance and public choice
literatures will be discussed as well as historical data comparing U.S. experience with
other OECD nations. We will discuss the differences between budgeting for federal
government, states, private firms and the family.
Allen Schick, The Federal Budget: Politics, Policy and Process – Chapters 1 and 2.
PBS Frontline http://www.pbs.org/wgbh/pages/frontline/cliffhanger/
ASSIGNMENT due on January 28: Students will each play a game on budgetary
choices to familiarize ourselves with federal budget choices.
http://crfb.org/stabilizethedebt/ Each student will write a two pager discussing the three
new things you learned about what it will take to close the fiscal gap.
January 28– Macrobudgeting: The Economic role of the federal budget
Discussion will place the economic role of the federal budget in perspective. Primer on
macroeconomics and the role of fiscal policy in influencing macroeconomic trends.
Recent historical experiences and projected long term models for future economic
outcomes will also be discussed.
Van Doorn Ooms et. al., The Federal Budget and Economic Management – handout
CBO, Macroeconomic Effects of Alternative Budget Paths, pp. 1-12
IMF, Fiscal Monitor, October 2013, Chapter 1
Paul Krugman http://www.nytimes.com/2013/12/30/opinion/krugman-fiscal-feverbreaks.html?ref=paulkrugman
http://www.nytimes.com/2013/10/18/opinion/krugman-the-damagedone.html?ref=paulkrugman
Committee for Responsible Federal Budget, http://crfb.org/blogs/reinhart-and-rogoff
Reinhart and Rogoff, Growth in a Time of Debt – handout
Suggested reading:
Alan Auerbach, American Fiscal History in the Post-War Era: An Interpretative History –
handout
Benjamin Friedman, Deficits and Debt in the Short and Long Run – handout
GAO, Federal Debt: Frequently Asked Questions
http://www.gao.gov/special.pubs/longterm/debt/index.html
ASSIGNMENT due on February 4 : Krugman has called those concerned about
rising debt deficit scowls while Reinhart and Rogoff worry about the consequences
of rising debt. What would you tell a member of Congress to do in the next few
years about – continue to curb the deficit, worry about the economy’s growth
instead? Or a combination?
February 4 – The crucible of politics
Assessment of the political underpinnings for budgeting by exploring political trends in
national government institutions, political parties, interest groups, media, cultural and
social divisions. The results of these trends will be linked to pressures being brought to
bear on the federal budget. Models will also be presented that seek to link dimensions of
political debates and interests with policy outcomes.
David Weimer and Aidin Vining, Policy Analysis in Representative Democracy handout
Hugh Heclo, Hyperdemocracy – handout
Anthony Downs, Why the Government Budget is Too Small in a Democracy – handout
James Buchanan, “Why Does Government Grow?” – handout
Tim Conlan and Paul Posner, Pathways to Power, Chapters 1 and 7
Suggested Readings:
Committee for a Responsible Federal Budget, “Deficit Reduction: Lessons From Around
the World,” (Washington, D.C.,
September, 2009).
Jens Henriksson, Ten Lessons About Budget Consolidation (Brussels: Bruegel Essay and
Lecture Series, 2007).
February 11 – Does it take a crisis?
Ryu, Chapter 7
Paul Posner, The Politics of Fiscal Austerity
Paul Posner, Will It Take A Crisis” Pew Foundation, March, 2011.
Standard and Poor’s downgrading of U.S. Treasuries from AAA to AA+
http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245316529563
GMU Centers on Public Service, The 1990 Budget Summit
Suggested Readings:
CRS report on government shutdown - handout
Phil Joyce, The Costs of Budget Uncertainty – handout
Leonard Burman, et. al. “Catastrophic Budget Failure” paper presented to the Conference
on America’s Looking Fiscal Crisis, Los Angeles, Ca., January 15, 2010
R. Kent Weaver, “The Politics of Blame Avoidance” Journal of Public Policy (1986), 6:
371-398
Assignment: Write a two page blog giving your Vegas betting odds on reaching
agreement on the following before 2016 elections: (1) debt ceiling increase (2) new
budget and appropriations for the next three years (3) social security reform and (4)
tax reform. What do you deduce are the major factors governing the probability of
action or stalemate across these cases.
February 11 and 18 – Microbudgeting: the structure of the federal budget process
Discussion will focus on the concepts underlying the preparation of the federal budget,
including budget baselines, budget accounts, functions, character class codes and object
classes. The basic fundamentals about tracking federal expenditures through the process
will be covered. Various kinds of budget authorities will be covered, including
discretionary, mandatory, contract. Trust funds and federal funds will also be covered.
U.S. GAO, A Glossary of Terms Used in the Federal Budget Process (GAO-05-734SP) –
read appendices
U.S. OMB, Historical Tables, FY 2012 Budget
Allen Schick, Federal Budget, Chapters 3 and 4.
ASSIGNMENT due on February 18: Different students will be asked to make
presentations in class interpreting trends in the following areas:
--Revenues over the past 50 years
--Defense spending over the past 50 years
--Health care spending over the past 50 years
--Federal investment spending over the past 50 years
--Grants to state and local governments over past 50 years
--Income Security over past 50 years
--Federal civil servants pay and benefits over past 50 years
Using the OMB Historical Tables, groups of students will explain for the class the
trends in nominal and real numbers as well as provide other perspectives helping to
explain reasons for the trends.
February 25 and March 4– The politics of budget formulation: The Executive
Branch
We will focus on the process of budget formulation – from both agency and central
budget office perspectives. Discussion will first center on the role and nature of the
formal institutions involved with budget formulation, including processes, requirements
and submissions. Students will become familiar with the OMB Circular A-11 – the basic
guidance to agencies to formulate their requests. The discussion will then proceed to
explore the politics behind the process – what are the incentives faced by the various
players in the process and what are some of the strategies they pursue?
Ryu, Chapters 13-16
Allen Schick, Federal Budget – Chapter 5
Aaron Wildavsky, “Calculations” - handout
Joseph White, Budgeting for Entitlements – handout
Roy Meyers, Strategic Budgeting – handout
Suggested readings:
Barry White, Examining Budgets for Chief Executives – handout
Charles Lindblom, The science of muddling through, Public Administration Review,
1959
James True, Frank Baumgartner and Bryan Jones, Policy Punctuations: U.S. Budget
Authority, 1947-1995 – handout
Charles Levine, Organizational Decline and Cutback Management, Public Administration
Review
Lynn on Niskanen - handout
ASSIGNMENT due on March 4 : Students will make presentations in groups
focused on specific agencies. In this case, students will be asked to assess the
following kinds of budget cuts for the specific federal agency to be determined : (1)
across the board cuts (2) cuts in employee pay and pensions (3) cuts in capital
investment and maintenance and (4) cuts in grants and other benefit payments.
Students will evaluate the short and long term financial costs/benefits, the social
costs/benefits and the political costs/benefits.
March 18 – The role of the Congress (Presentation by guest lecturer)
Discussion will focus on the Congressional budget and appropriations processes. How
does Congress formulate its own budget goals and how do the various institutions within
Congress work to either support or undermine the process? The discussion will focus on
appropriations committees and their roles in the process, as well as on authorization
committees.
Allen Schick, Federal Budget, Chapters 6, 8 and 9
Jonathan Rauch, “Divided We Thrive,” New York Times November 14, 2010.
Diana Evans, Congressional Appropriations –handout
Suggested Readings:
James Saturno, Points of Order in the Congressional Budget Process - handout
Steven Smith, “Congressional Trends”, – handout
Philip Joyce, Congressional budget reform: The unanticipated implications for federal
policy making
Public Administration Review. Washington: Jul/Aug 1996. Vol. 56, Iss. 4;
March 25 – Performance budgeting and accountability
Discussion will focus on how budgets impact performance and implementation of
programs. Discuss approaches over the years to introduce performance assessments and
measures into budgeting. Discuss how agencies manage funds after appropriations are
enacted. Oversight, audit and evaluation will also be addressed.
Ryu,, Chapters 8-12
Allen Schick, Federal Budget, Chapter 10
Paul Posner and Denise Fantone, Performance Budgeting: Improving Prospects for
Sustainability – handout
Suggested readings:
CBO, Comparing Budget and Accounting Measures of the Federal Government’s
Financial Condition, Dec, 2006
Allen Schick, The Road to PPB: Stages of Budget Reform – article in Public
Administration Review, December, 1966
OMB, Analytical Perspectives, FY 2012, Chapter 31
GAO, Understanding the Primary Components of the U.S. Government Financial
Statements http://www.gao.gov/assets/80/76924.pdf
ASSIGNMENT due on April 1: For class discussion, go to web site expectmore.gov
which lists ratings done by Bush administration on the performance of all major
federal programs. Read ratings for two of the programs rated “effective” – National
Highway Traffic Safety Grans and Federal Transit Administration Formula Grants.
And then read ratings for two “ineffective” programs – Amtrak and Essential Air
Service (rated results not demonstrated which is even worse than ineffective). Be
prepared to discuss the implications of these ratings in class.
April 1 - The politics and process of taxation
Discussion will focus on the composition of revenues, the implications of tax policy for
economic outcomes and for budgetary choices. Tax expenditures are among the issues
that will be considered
Allen Schick, Federal Budget – Chapter 7
GAO report on tax policy - handout
Sheldon Pollack, The Politics of Taxation – handout
Suggested readings:
U.S. GAO, Government Performance and Accountability: Tax Expenditures Represent a
Substantial Federal Commitment and Need to be Reexamined, (GAO-05-690)
Jonathan Baron and Edward J. McCaffery, “Starving the Beast: The Political Psychology
of Budget Deficits” – handout
April 8 - All Money is not Green: Capital budgeting, earmarked revenues and user
fees
We will learn about the special challenges associated with budgeting for capital, fee
funded programs and earmarked revenues. Advocates for these kinds of programs have
perennially attempted to recognize the different character of these kinds of programs by
providing for differential treatment in the budget process. This session will discuss the
unique issues associated with each, and will explore the implications of such solutions as
capital budgets, trust funds and offsetting collections for the politics and outcomes of
budgeting.
OMB, Analytical Perspectives, FY 2012, Chapters 16, 21 and 28
Suggested Readings:
GAO, Executive Guide: Leading Practices in Capital Decision-Making. GAO/AIMD99-32. December 1998
President’s Commission to Study Capital Budgeting Report, 1999.
Paul L. Posner, Public-Private Partnerships: The Relevance of Budgeting, paper
presented at OECD Senior Budget Officers meeting, 2008
GAO, Federal User Fees: A Design Guide, 2008, GAO-08-386SP
April 15 – Intergovernmental Fiscal Relationships
Federal budgeting is not only about federal agencies and their employees but also entails
a range of other subsidies and tools providing subsidies, grants and loans to state and
local governments and other nonprofit and private for profit entitities. State and local and
the national government often jointly participate in financing public services through
grants, loans and tax expenditures as well as mandates. This discussion will examine
federal budgeting for intergovernmental programs and understand the implications for
federal and state and local finances and accountability to common taxpayers. We will
assess whether the politics of federal budgeting varies significantly for different tools of
governance and how this manifests itself in federal program design and implementation.
Ryu, Chapters 21 and 22
Report of the State Budget Crisis Task Force .
http://www.statebudgetcrisis.org/wpcms/wp-content/images/Report-of-the-State-BudgetCrisis-Task-Force-Full.pdf
OMB Analytical Perspectives FY2013, Chapter 18
Suggested Reading:
Timothy Conlan and Paul Posner, “Inflection Point: Federalism and the Obama
Administration”
April 22 – BUDGET PROCESS REFORMS
When groups don’t like the outcomes of the budget process, they reach for budget
process reforms to change the results. In this session, we will inventory the types of
process reforms, understand their prospective impacts and explore the political prospects
of serious reform to the budget system at the national level.
Paul Posner, “Waiting for Godot” Public Administration Review, March/April, 2009
Aaron Wildavsky, The Political Implications of Budget Reform: A Retrospective –
Handout
Allen Schick, Federal Budget, Chapter 11
Getting Back to Black, Report of Pew-Peterson Commission on Budget Process Reform,
November, 2010
Suggested Readings:
Center for Budget and Policy Priorities, Budget Process Reform, 2007 – handout
Heritage Foundation, 10 Elements of Comprehensive Budget process Reform, 2006 handout
Philip Joyce and Robert Reischauer, The Federal Line Item Veto: What it is and what it
will do, Public Administration Review Vol 57, No. 2 (March,April, 1997)
Irene Rubin, The Great Unraveling: Federal Budgeting, 1998-2006, Public
Administration Review, July/August, 2007, Vol 67, Issue 4
April 29– Assessing Long Term Commitments and Fiscal Risks
Session will explore how to think about long term commitments in the federal budget.
Long term budget models will be examined to ascertain the nature of the long term
exposures in the federal budget. New approaches for measuring and presenting those
commitments in federal budgeting will be assessed. Potential linkages between federal
budgeting and accounting will be examined to test whether additional value could be
realized from the integration of these two financial disciplines.
GAO, Fiscal Exposures: Improving the Budgetary Focus on Long-Term Costs and
Uncertainties, GAO-03-213 (Washington, D.C.: Jan. 24, 2003).
Congressional Budget Office, The Long Term Budget Outlook, 2013
The National Commission on Fiscal Responsibility and Reform, Moment of Truth,
December, 2010
Henry
J. Aaron, “How to think about the U.S. Budget Challenge,” Journal of Policy
Analysis and Management (2010).
Suggested readings:
GAO, Accrual Budgeting: Useful in Certain Areas But Does Not Provide Sufficient
Information for Reporting on the Nation’s Long Term Fiscal Challenge, GAO-08-206,
2007.
Alan M. Jacobs, “The Politics of When: Redistribution, Investment and Policy Making
for the Long Term,” British Journal of
Political Science 38 (2008), pp. 193-220.
,
R. Kent Weaver, ‘Insights from Social Security Reform Abroad” in iR. Douglas Arnold,
Michael J. Graetz and Alicia H
Munnel, eds. Framing the Social Security Debate (Washington, D.C.: National Academy
of Social Insurance, 1998).
John Myles, discussant on Weaver, “Instights from Social Secuity Abroad” in R. Douglas
Arnold, Michael J. Graetz and Alicia
H Munnel, eds. Framing the Social Security Debate (Washington, D.C.: National
Academy of Social Insurance, 1998).
Paul Posner and Irene Rubin, “Budgeting for the Long Term”
May 6 – Final class discussion
Wrap up of course and discussion of lessons learned about budgeting in preparation for
final exam.
ASSIGNMENT: Students will form groups to attempt to debate and pass a $1
trillion reduction in the deficit through the U.S. Senate. Students will join groups to
play the following roles: President Obama, Senator Reid, Senator McConnell,
Senator Snowe, Senator Nelson. Each group will have a predefined number of
Senatorial votes; budget options will be provided to the groups as the basis for
proposals. The simulation game will be played on December 2 or December 9.
FINAL EXAM – SENT OUT May 6